Wednesday, October 29, 2014

The Shrinking Middle (Tradecraft)

Wizards of the Coast announced something today that Magic players will likely never hear about. On December 29th, they'll reduce the discount for Magic product by 2%, increasing our costs by 4%. They're not raising prices, they're just reducing the discount, meaning retailers will pay more, but will sell for the same price. How much more? I estimate $3,000-$8,000 a year, from each store, will just evaporate from retailer coffers. WOTC costs have been steadily rising for us in the form of shipping surcharges, but this is the first time the discount has been changed since 2009.

The reasons for shrinking margins is the usual stated added increases in costs of doing business that every reduced margin publisher provides us, be it Wiz Kids, Paizo or the myriad of others. Often those programs disappear or are entirely forgotten, while the shrunken margin remains. Even when they still exist, what other industry adds the cost of their doing business to their retailers?

In the case of Wizards, they have not raised prices on Magic since 2006, when packs went from $3.69 to $3.99. Using an inflation calculator, the price for a Magic booster, keeping up with inflation, should be $4.71 right now. So why not raise the MSRP?

It doesn't need to go up a buck, but even a quarter is well within what they need to cover their increased costs. More than likely, this is because Wizards of the Coast doesn't want to risk upsetting their customer base. When you've got a golden goose, you don't change its feed. But retailers? Whadda they gonna do about it? Nothing, that's what. We lack our own trade organization and an after hours email saying you've just lost $2,000-$8,000 next year is not an unusual occurrence.

As I've mentioned many times, with both an MSRP system and a discount structure, there is no way for game stores to cope with rising costs. When our costs go up, we can't raise prices, so we find a way to eat it, and that way is usually less staff, poorer infrastructure, and cost cuts in uncomfortable areas, from toilet paper quality to how often we clean the carpets. It makes the game trade a backwater, an inflexible business model that is inherently down market. Publishers then scoff at us and our operation, a model of their own making. It would be nice if the 500 pound gorilla in the industry was at least more understanding of our plight.

I will say that Sealed Magic product, particularly booster boxes is already a discounted product at retail. Nobody sells boxes for $143.64 so it will mostly mean that stores, even online ones will raise their prices by $3-5 per box. Anyone who doesn't is committing retail suicide. You could say that this is putting the greater squeeze on the heavy discounters who already have razor thin margins, which is true but it is annoying just the same. A rise in MSRP would have made it easier to justify passing the cost onto the customer.

This won't hurt my in store sales of packs to much. But the money I make online will be impacted. This is definitely a shot across the bow of online retailers. I also think it is a precursor for a price jump. Which will put a nail in the coffin for many online retailers.

They've been saying that price increases will hurt online retailers for 20 years (the exact number of years that TrollAndToad.com has been selling magic online.

The TRUTH is that if WotC raised the MSRP of the product, it only HELPS online retailers.

If the box is $200 in your local retail store at MSRP, with a cost of $120 at wholesale: THEN customers will likely buy almost entirely online (when buying boxes) because the price difference between retail and online is more pronounced.

My store will raise box prices by $6, to $125.99Our booster price will remain unchanged at $3.99, but we will discontinue the 6 for $20 pricing to induce sales of 6 packs at a time.

It sucks that WotC doesn't do more to increase the retail tier's viability.

Good point Marcus. I always appreciate your big picture view of things. Although I would like WOTC to act in my best interest, they act in their own best interest, as they should. Now we respond, as we do.

If you're new to the game trade, the two steps forward, one step back model is pretty much how it goes. If you can't handle that regular one step back, this dance is not for you.